Japan

From growing inequalities to inclusive growth

Remarks by Angel Gurría, Secretary-General of the OECD, delivered at the RENGO Symposium on Japan’s 50th anniversary as a member of the OECD

8 April 2014, Tokyo, Japan

Ladies and Gentlemen,

I would like to thank you for the warm welcome to RENGO and to Japan. It is a pleasure to be here with you today to discuss the issue of inclusive growth, on the occasion of Japan’s 50th anniversary as a member of the OECD.

50 years of Japan and the OECD

Before talking about inclusive growth, let me say a few words about Japan’s leading role in the OECD over the past 50 years.

Since Japan became the 21st member of the OECD in 1964, it has been an active contributor to the OECD’s work. Currently 16 OECD Committees are chaired or vice-chaired by Japanese delegates. More than 700 delegates from Japan attend OECD meetings every year. Many outstanding Japanese experts have been chosen to fill senior staff positions at our Organisation, among them our present Deputy Secretary-General Rintaro Tamaki.

As one of the OECD’s most active members, Japan has provided high-quality expertise and strong leadership in fostering consensus-building in key areas of OECD work. Japan has played a key role in OECD enlargement and in strengthening our ties notably with Southeast Asia.

This year Japan chairs the OECD Council Meeting at Ministerial Level, for the second time since 1978. Taking this opportunity, we would like to thank Japan for its leadership. We are looking forward to working together over the next 50 years to develop more resilient and inclusive economies and societies.

RENGO and TUAC

While Japan has been an indispensable member of the OECD, RENGO has been a driving force in TUAC, our Trade Union Advisory Committee since it was formed as a confederation in 1989. TUAC, along with BIAC, its business and industry counterpart, is a key interlocutor for the OECD.

I would like to thank Nobuaki Koga for his leadership over the past few years. We appreciate RENGO’s constructive input, especially its contributions to discussions on new growth models and inclusive societies. And RENGO has also been very active in promoting and improving the OECD Guidelines for Multinational Enterprises and strengthening the function of the National Contact Points.

From growing inequalities to inclusive growth

Let me now turn to the topic of today’s symposium, inclusive growth. The OECD’s vision for inclusive growth is about win-win policies that combine strong economic growth with improvements in all those aspects of life that matter for people’s wellbeing – good health, jobs and skills, and a clean environment.

Inclusive growth means improving these outcomes for all countries, all regions and all citizens: senior citizens and young people, men and women. Inclusive growth is about making sure that all share in the benefits of growth, not only in terms of increased material prosperity, but also wellbeing more generally.

The numbers, however, tell a bleak story: OECD analysis shows that income inequality has been on the rise in most OECD countries since the 1980s. In 2010, the average income of the richest 10% of the population was about 9½ times that of the poorest 10% on average in the OECD area, as opposed to 7 times 25 years ago.

For Japan, the numbers show a similar picture: while the rich were earning 8 times as much as the poor 25 years ago, this ratio had risen to 11 by 2009.

Poverty has also been on the rise: the share of people earning less than half of the median income has increased from 12% in the mid-1980s to 16% in 2009. This is a faster increase than the OECD average.

Poverty rates are particularly high among single parents, working-age singles without a job, and senior citizens. One fourth of all Japanese citizens above the age of 76 years live in poverty. There is also a large gender divide in Japan: at close to 30% the pay gap between women and men is the second highest in the OECD area, after Korea.

Inequality, of course, goes beyond income. Our work shows that rising inequality in income is often accompanied by growing exclusion in the labour market, lower intergenerational social mobility, and greater polarisation in educational and health outcomes.

In turn, growing unequal can undermine the foundations of market economies and democracies. It weakens social cohesion, fosters discontent, and saps trust in policy and institutions. And it may be a brake on growth by hampering economies from using its human capital to the fullest potential.

The good news is that it is possible to grow more equal. In some parts of the world, including in some OECD countries, the gap between the rich and poor has actually narrowed over the last decade or so. Countries like Brazil, Chile and Mexico have managed to grow while reducing their still-high income disparities and making significant progress in education and other social outcomes.

Policies to foster inclusive growth

So how can countries foster inclusive growth? The OECD's Inclusive Growth Initiative aims at providing answers to this question. It came about in the wake of the recent crisis, amidst mounting concerns about the long term consequences of growing inequality.

The Inclusive Growth framework rests on three cornerstones. First, it is multi-dimensional as it also looks at both income and non-income outcomes, such as employment and health. Second, it emphasises the distributional consequences of policies so that the effects of policies can be assessed not only for “average” households, but also for other social groups such as the middle class and poorer households. Third, it is policy relevant and actionable. It helps policy makers to identify, analyse and exploit synergies among policies that can boost equity and growth, and to take compensatory action when trade-offs are present.

What does this framework imply for Japan? A major concern for Japan is the segmentation of the labour market. The share of non-regular workers –part-time and fixed-term workers and workers sent from private employment agencies – has nearly doubled since 1990, to 34% of total employment in 2012. Many of them are women. To break down labour dualism, a comprehensive strategy is needed. For instance, the social insurance coverage of non-regular workers needs to be increased and the effective employment protection for regular workers needs to be reduced.

In addition, Japan needs to strengthen the redistributive impact of its tax and benefit system, which currently is among the lowest in the OECD. While the government’s plans to increase the progressivity of the tax system are a step in the right direction, well-targeted social spending is also essential to promote inclusive growth.

A key priority here is to introduce an earned income tax credit (EITC), which tops up the incomes of low wage-earners while at the same time promoting their employment. Such a tax credit would also cushion the impact of the consumption tax hike.

Also, there is much that can be done to reform the education system so that it can better promote social cohesion. Investment in early childhood education and care for children from disadvantaged families is especially important as it brings benefits throughout the entire lifetimes of Japanese children!

Of particular concern in Japan is also the heavy reliance on private, after-school tutoring. As this tutoring is very expensive, children’s educational outcomes are heavily driven by the income level of their parents. This entrenches inequalities.

To break this link, the government should reduce the reliance on private, after-school tutoring by increasing the quality of schools and by improving the accessibility of after-school lessons for students from low-income families.

The rapid ageing of the Japanese society poses particular challenges to inclusiveness. By 2050, the share of the population aged 65 and over will double, to 28%. Most of these people are in good health, have valuable skills and experience, and are willing to continue to make a significant contribution to society.

It is important that they have the possibility to stay active as they grow older by introducing more flexible employment and wage systems for older workers, in part by abolishing mandatory retirement prior to the pension eligibility age. Such changes would help transform the culture of the workplace.

Facilitating for the elderly to continue contributing to society will not only increase the productive potential of the economy, it will also improve their individual wellbeing by maintaining their social networks.

Ladies and gentlemen,

With the right reforms it is possible to boost economic growth and address the significant social challenges that are the result of years of unequal access to and unequal distribution of growth dividends.

Together with our member countries we are working to identify and put in place the optimal policy packages to improve the wellbeing of our citizens. We count on RENGO and TUAC to help us achieve this ambitious goal. Thank you!